Image source: Getty Images.
Continue Reading Below
There are significant benefits to including a few dividend-paying stocks in your portfolio. Not only can they produce steadier returns with lower stock price volatility, but their payments help investors take advantage of market swings simply through automatic reinvestment plans. Then, as retirement approaches and income becomes a bigger priority, you can easily start taking dividends in cash, rather than directing them toward automatic stock purchases.
Here are a few companies that pay substantial dividends and boast a solid track record of raising that payout over time. Below, I'll highlight some reasons to consider adding a few of them to your portfolio.
Data source: Company financial filings and YCharts.
Johnson & Johnson's stellar track record
For consistency, it doesn't get much better than Johnson & Johnson (NYSE: JNJ). The medical and pharmaceutical conglomerate has raised its dividend for 54 consecutive years -- one of the longest such streaks on the stock market.
Its massive scale in a consistently growing healthcare market has helped shares rise by a nearly 11% compound rate since 1985. Its 70% gross profit margin, meanwhile, not only beats other dividend payers on the above list but also outpaces more directly comparable companies, like Procter & Gambleand 3M.
Johnson & Johnson is growing faster than these industry giants, as well, which is a testament to its unusually strong competitive position. At 22 times last year's earnings, this stock isn'tparticularlycheap. Yet the company has consistentlydemonstrated why it deserves a premium valuation.
Home Depot's outsized profit gains
If it's fast growth that you're after, then consider Home Depot (NYSE: HD). The home improvement giant's profits are on a multi-year upswing, thanks to a rising housing market that has plenty of room to continue climbing. Annual net income soared from below $4 billion in 2012 to over $7 billion last year.
Home Depot targets returning 50% of those profits to shareholders in the form of dividends every year, which explains why the payout has skyrocketed lately. That's a more aggressive goal than rival Lowe'sand its 35% payout promise. Dividends aren't the only area where Home Depot beats its smaller competitor: Sales growth, profit margins, and capital efficiency metrics all point toward Home Depot as the stronger stock purchaseright now.
Yum! Brands' profitable new focus
Finally, Yum! Brands (NYSE: YUM), the owner of KFC, Pizza Hut, and Taco Bell restaurants, looks attractive right now for two big reasons. First, its operating results are strong. Earnings are up 30% over the last six months, thanks to rising restaurant-level margins and an aggressively expanding store base.
Image source: Getty Images.
Sure, comparable-store sales growth is slowing, but that is an industrywide issue and one that Yum!, with its diverse set of fast-food offerings, should be able to weather better than rivals.
Second, the restaurant chain is on the cusp of shedding its China KFC business, which will free management to focus its energies on improving market share in the U.S. The spinoff will also produce plenty of capital -- much of which Yum! plans to return to investors through stock buybacks and dividend increases.
Each of these investments carries specific risks that could cause the stock to underperform in the future. Dividends don't change that basic truth.
Yet by focusing on dividend payers, investors enjoy tangible returns in exchange for their patience, which makes it easier to stomach volatility on the way to -- ideally -- market-beating long-term stock price appreciation.
A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Demitrios Kalogeropoulos owns shares of Home Depot. The Motley Fool owns shares of and recommends Johnson and Johnson. The Motley Fool owns shares of Waste Management. The Motley Fool recommends Home Depot, Procter and Gamble, and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.